When it comes to life insurance, the one policy that everyone must have is a term insurance policy. These policies are simple – they cover you for a particular amount known as sum assured and for a fixed time frame, these two along with your age determines the premiums you got to pay. At a basic level term plans cover the risk of death and no more. Which means if you survive the completion of the policy tenure, the policy pays you nothing.
There is no savings or investment component in such policies. It is for this reason that term plans cost less. However, consumer demands for policies with a return or savings component has resulted variants of the ubiquitous term plan into variants that range from variable cover, tenure, return of sum assured and more. Given the multiple options; it in your interest to know about each one of them before taking one that meets your needs and requirements.
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Basic term plan: This is a type of life insurance which provides coverage for a certain period of time or years. If the insured dies over the policy tenure a death benefit (or sum assured) is paid out. No payout is made if the insured survives the tenure.
Decreasing sum term plan: Such a term plan is useful when you have a home loan running and wish to insure it. The sum assured in this plan is linked to the mortgage, so each passing year the sum assured goes down proportionately. Most home loan providers insist on this to borrowers to ensure the loan does not go bad in case of the borrower’s demise. It is in your interest to take this cover to make sure your dependents do not face a situation that is avoidable in your absence.
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Increasing sum assured: In such policies, the sum assured goes up at a defined rate each passing year. Some companies refer to this concept as COLA: cost of life adjustment and set it at inflation to maintain the cover that one needs with passing time.
Monthly payout: Such term insurance policies promise to payout the policy proceeds in a manner that your dependents receive the money every month indefinitely or a preset number of years depending on what you opt for at the time of taking the policy.
Return of premium: These are term plans in which if you survive the policy term, the policy pays back the premiums collected over the years. At the same time, if the policyholder dies during the policy tenure; the policy pays out the sum assured to the nominees mentioned in the policy.
Each one of the option has its share of pros and cons. While the cost of the basic term plan is the least, there is compelling reason to choose from the other available variants depending on your need and situation in life. Do not be blinded by costs alone when it comes to insurance, features are important and they are offered considering consumer needs.
